Battle of the Beach

Beach season has arrived and seven months after Superstorm Sandy, most of the Jersey shore is open for business. But some towns still struggling with recovery fear the real fight for their future has not yet begun.

With debris cleared, beaches replenished and boardwalks repaired, many New Jersey shore towns will be putting up open-for-business signs this holiday weekend, just seven months after the devastation of Superstorm Sandy. The Jersey shore is back for another summer.

Before and After Sandy

The New Jersey shore cleanup is a big job. Take a look back at the initial damage.

But Thomas Anzalone of Long Branch, N.J. is not reassured. For those parts of the shore still fighting to recover from the disaster, he thinks that the real battle for survival has yet to begin. On a recent afternoon, the 57-year-old accountant was fixing the storm-damaged roof of the waterfront bungalow that he shares with his father. He fears that developers will take over what Sandy left behind and sees an ominous precedent in a 1987 fire that destroyed a Long Branch pier. The town invoked eminent domain—the power to appropriate private property for the public good—to replace a fire-damaged neighborhood with a new luxury complex of shops and condos.

"What Sandy has done to many towns, a fire did to Long Branch," says Mr. Anzalone. "Eminent domain came for us, and it will come for them."

Despite upbeat public messages, local officials along the 126-mile-long Jersey shore privately say that the aftermath of one of the worst storms ever to hit the U.S. may require a host of far-reaching solutions to preserve the long-term viability of their towns. These include sensitive measures like merging services with other towns and even merging towns themselves. Eventually, shore communities may also use the power of eminent domain, a politically explosive issue across the nation and nowhere more so than in Mr. Anzalone's town.

After the 1987 fire in Long Branch, local officials declared that the surrounding neighborhood had become blighted, a designation allowing them to seize dozens of waterfront homes—including those of longtime and low-income residents who did not wish to sell—for an upscale project that they hoped would signal the city's revival. The centerpiece of the development, called Pier Village, opened in 2005 amid protests and lawsuits. Today, the $400 million complex, which sits on 16 acres of oceanfront property, includes a boutique hotel and a members-only beach club called Le Club.

A home destroyed nearly five months ago during the landfall of Superstorm Sandy is pictured in Mantoloking, N.J. Reuters

"What happened in Long Branch is what I would call socio-economic cleansing," says Peter Dickson, a Princeton, N.J., lawyer who successfully argued a 2007 case before the New Jersey Supreme Court that slowed the use of eminent domain in the state. Should some of the towns not find a path to recovery, he adds, "this could come back with a vengeance."

In a March meeting on recovery efforts hosted by New Jersey state officials, a resident of Seaside Heights, about 30 miles south of Long Branch, said she was worried that she could lose her damaged home to "major developers who will take over our neighborhoods." At a February meeting in Sea Bright, just up the shore from Long Branch, the town's mayor acknowledged, "People fear a heartless government coming in and taking away their land. They fear a plastic look and that the downtown will wind up looking like Pier Village."

The power to take private property for the common good, typically for things like roads, schools and bridges, dates back to biblical times. The Fifth Amendment of the U.S. Constitution bestows the right on the federal government but also requires just compensation. State constitutions typically extend the power to local governments. Since the urban decline of the 1960s, courts have expanded the definition of "public use" to mean "public benefit," allowing developers who promised higher tax revenue and jobs to seize property considered blighted.

The practice took off during the real-estate boom of the 2000s, as developers flush with cash, working with investment-hungry town governments, turned so-called underutilized properties into big-box retail stores and in many cases upscale residential-commercial developments. The activity prompted growing complaints of abuse.

Concerns came to a head following the 2005 U.S. Supreme Court case of Kelo v. City of New London, in which the justices allowed the taking of property from low-income residents for a condo-retail project in Connecticut. The case triggered a backlash. Nine state supreme courts and 44 state legislatures subsequently strengthened criteria for allowing eminent domain, according to the Institute for Justice, a public-interest law firm focused on property rights.

"It is hard to think of a more fundamental American principle than the sanctity of the home and private property," says Robert McNamara, an institute attorney. "Frequently the word blight has been a cover for government officials giving property to someone they like better—and that's why it's a dangerous practice."

Despite the restrictions imposed by state courts and legislatures, eminent domain continues to be invoked around the country. In National City, Calif., south of San Diego, a developer is seeking to take a large area designated by the city as blighted, including a youth athletic center, to build condominiums. Last fall, Denver officials authorized the use of eminent domain for redevelopment in the city's historic Five Points district. The developer behind the Barclays Center, the new home of the Brooklyn Nets basketball team, was able to seize properties under eminent domain to get the structure built.

Even opponents agree that, when used properly, eminent domain can be an effective tool. "Eminent domain is like a knife," says Vince Lepore, a Long Branch activist who fought against Pier Village. "It has its uses, but when used carelessly, it can hurt."

Superstorm Sandy has already brought the issue to prominence again in New Jersey as the state tries to strengthen the shore against future disasters. Earlier this month the state supreme court heard a case involving a couple who, before the storm, won a $375,000 judgment from a lower court as compensation for their town's building a dune on their property. The town, Harvey Cedars, had paid the couple just $300 for an easement, seized through eminent domain. The action, they argued, had hurt the value of their property.

More towns since Sandy have wanted to build dunes, but they have been slowed by the case, fearful of lawsuits and of having to spend millions of dollars to waterfront homeowners.

At a March town hall gathering on the matter, Gov. Chris Christie won applause when he blasted such "selfish" people for standing in the way of what he called the "greater good" of improved dune protection.

Development lawyers expect to hear similar arguments from towns recovering from Sandy. With 565 municipalities, New Jersey has one of the highest numbers of towns per capita in the nation. Many of them have their own boards, police departments and other services, which contributes to some of the country's highest property taxes. Some towns now are reckoning with a reduction of 10% or more in the value of their taxable property from Sandy, and at least one, Mantaloking, with more than a 30% decline, according to the latest tax assessments.

"These clobbered towns may get some interim relief from Congress," says William Ward, a Florham Park, N.J.-based lawyer who specializes in eminent domain cases. "But the long-term issue is going to stay: They have lost a significant portion of their tax rate base but still have fixed costs for police, fire and schools."

That means finding ways to attract developers to rebuild.

Tom Neff, director of local government services in the Department of Community Affairs, a New Jersey state agency, says he does not foresee instances of eminent domain in the near term. However, "five years from now, if an entire swath of a community becomes blighted and not rebuilt and there are people not paying their taxes—well, time will tell."

About 20 miles up the coast from Long Branch, largely blue-collar Union Beach appears to be a leading candidate. Abandoned homes dot one neighborhood where Sandy swept more than a dozen houses out to sea, leaving behind driveways leading nowhere. The town, which has mostly primary residences (unlike wealthier summer communities to the south), has torn down 167 condemned houses since the storm and has at least another 57 to go, according to the town administrator.

In the long run, officials say, neighborhoods where occupied houses are interspersed with vacant lots will not be viable, and entire areas will need to be rebuilt. Paul Smith, Union Beach's mayor, says that the priority for the moment is to get people to come back. The problem is getting the money they need to rebuild.

"A lot of people here live paycheck to paycheck," says Mr. Smith, who works in shipping for a fragrance company. "That is the scary part—people won't be able to rebuild."

Patricia Wood, a 60-year-old homemaker, still hasn't moved back into her residence of 34 years in Union Beach that she shares with her husband, a driver for a phone company. The flooded home was recently elevated by 13 feet to comply with new regulations, a $35,000 cost covered by a federal loan. She has no idea where she will get the additional $25,000 needed for remaining repairs. Some neighbors have just disappeared, abandoning their damaged homes, she says.

With exceptions like a hardware store and a clothing store, most of the businesses in Sea Bright remain boarded up. One recent evening, almost the only source of light in the town's commercial district was Harry's Lobster House, which has been serving lobster bisque since 1933. A single diner ate in the main room.

"It feels like the end of the world," said Lou Jacoubs, chef and owner of Harry's, flipping a steak on his industrial stove, which somehow survived 5 feet of flooding in the restaurant's kitchen. Mr. Jacoubs confirmed rumors that a real-estate investment company, Besen & Associates, had made him an offer. The firm has since withdrawn the offer, but Mr. Jacoubs says that he is still looking to sell. Besen & Associates says that it made offers on many businesses in areas affected by the storm.

Today, a town in New Jersey can designate a neighborhood as an "area in need of redevelopment," the current vernacular for blighted, giving officials certain revitalization tools. These include measures like tax exemptions and abatements, a waiver on competitive bidding for developers and—in areas where residents don't want to sell—eminent domain.

A bill working its way through the New Jersey legislature would provide two tracks for towns considering redevelopment measures: one allowing the use of eminent domain but requiring stricter scrutiny and a more demanding approval process; and the other forbidding eminent domain but requiring less oversight. Local officials seeking the revitalization tools that accompany a blight designation, but without frightening residents about the possibility of using eminent domain, could opt for the second track.

For now, the weakened real-estate market has put the brakes on eminent-domain takings by developers. "The power to do this is still there, but the market isn't," says Mr. Ward, the lawyer. When the market comes back, so will the blight takings, he adds.

Should that unfold, such actions could recall what happened in Long Branch with Pier Village.

Long Branch was once a thriving summer resort of sprawling farms and open vistas, popular in the late 19th and early 20th centuries with U.S. presidents and film stars.

In the 1960s, urban decay set in from failed public housing projects and demographic shifts. The devastating 1987 fire destroyed a long-standing pier, a local landmark that held an amusement park, and accelerated the decline. Drugs and gangs proliferated.

City officials came up with a master plan in the mid-1990s, designating much of the waterfront an "area in need of redevelopment." In 2000 the city awarded the contract to a developer. Residents, many of them elderly and living on retirement savings, soon realized their homes were to be destroyed.

Some of the locals caught in the cross hairs lived in a middle-class enclave of well-kept bungalows and cottages that had been in the same families for generations. Some sellers received payments considered well below market value, but they lacked resources to sue. Many moved away. Others banded together and tried to fight in the courts.

Bruce MacCloud says that armed police officers forcibly removed him from his three-story home of 25 years in Long Branch in 2002 just days before Thanksgiving. A builder, Mr. MacCloud says that he had spent years restoring the shingled, 100-year-old Victorian home, a few hundred feet from the ocean.

"What happened in Long Branch to achieve Pier Village is an atrocity," says the 53-year-old Mr. MacCloud, who now lives in Tom's River in a ranch-style home a couple of miles from the water.

The strain contributed to his divorce from his wife, who received custody of their two children, he says. The town offered him just $189,000 for the house in compensation, he says, which was increased to $220,000 after a lengthy court battle. "I paid off my home, restored it, started a family there, and then I lost it all," says Mr. MacCloud. "I know this was not for the good of the people."

The condo development in Long Branch moved ahead, with hundreds of units, many priced above $500,000. Shops and restaurants followed.

Plopped on a shoreline noted for its diversity—from the honky-tonk boardwalk scene to stately mansions—Pier Village and the connected development stand out for their uniformity: street after street of identical four-story condos in tan. The development hasn't made the waterfront a year-round community, as hoped, but the area is busy in the summer months. Work recently began on the last phase of the project, a 68-room hotel. A spokesman for the developer says that all 283 for-sale residences in Beachfront North, a part of the redevelopment area, have been sold.

The Pier Village complex weathered Sandy well because of its up-to-date building materials, according to David Barry, the president of Hoboken-based Ironstate Development Co., which built the complex. The Long Branch mayor who spearheaded the strategy has since been re-elected many times, Mr. Barry points out, and the sale of beach passes in Long Branch has increased.

Eminent domain "serves a very useful purpose," says Mr. Barry. "These badly damaged towns will need to figure out a way forward. If they don't want a patchwork recovery, they may find such tools necessary."

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